Red Sea attacks “pose bigger issue to supply chain than pandemic”

The US has carried out its eighth round of airstrikes against Houthi targets in Yemen. US military officials said the strikes were successful and had “good impacts” in all eight locations. while US Central Command said the operation was to “respond to increased Houthi destabilising and illegal activities”.

The action came as ocean supply chain advisory firm Sea-Intelligence warned that the disruptions to shipping from the  Houthi rebel attacks in the Red Sea are already more damaging to the supply chain impact than the early Covid-19 pandemic.

The firm analysed current vessel delays compared to delays over recent years in a report for clients. The data shows that the longer transit around the Cape of Good Hope as ships divert from the Red Sea is already having a more significant impact on vessels available to pick up containers at ports than during the pandemic. This supply chain measure is known in the industry as “vessel capacity.”

The shipment delays caused by vessels avoiding the Red Sea is causing problems for Germany’s chemicals industry, which relies on Asia for around a third of its imports from outside Europe.

Martina Nighswonger, CEO and owner of Gechem GmbH which mixes and bottles chemicals for major industrial clients, says her procurement department is currently working “three times as hard” to get hold of raw materials.

As a result, Gechem has lowered production of dishwasher and toilet tablets because it can’t get enough trisodium citrate as well as sulfamic and citric acid. The company is also reviewing its three-shift system and the ripple effects from the transport squeeze could remain a problem for the first half of 2024 at least.

This is causing frank discussions with customers, Nighswonger added. “If we get three truck loads instead of six, each customer only gets part of their order quantity, but at least everybody gets something,” she said.

Speciality chemicals maker Evonik also said it was being hit by “short notice routing changes and delays”, with some ships changing direction as many as three times within a few days.

JP Morgan commented that while shipping disruption in the Red Sea and the Panama Canal was driving chemical prices it could also accelerate companies’ restocking efforts and therefore lead to higher demand.

This, “if sustained, might alleviate the pressure from Chinese chemical exports and potentially result in some strengthening in prices/margin and as a result inventory restocking”, the group wrote.

German shipping group Hapag-Lloyd announced that it will introduce land corridors to transport goods through Saudi Arabia to mitigate the impact of Red Sea disruption on its business. The company said it would offer land connections from Jebel Ali, Dammam and Jubail to its ocean shuttle service out of Jeddah.

“Our aim is to provide (customers) with a convenient contingency solution to overcome this unexpected closure until the situation in the Red Sea has been normalized,” the group confirmed. Hapag-Lloyd also said that it will continue to route its vessels around the Cape of Good Hope until further notice while attacks on vessels in the Red Sea continue.

Danish shipping group Maersk also announced that it is diverting its ME2 container service away from the Red Sea and Gulf of Aden, rerouting vessels around the Cape of Good Hope. The ME2 service links Italy and the western Mediterranean Sea to the east coast of India and the United Arab Emirates (UAE).

Concerns were expressed at the World Economic Forum (WEF) in Davos, Switzerland last week that ongoing disruption to shipping would hit trade growth and push up inflation.

Ngozi Okonjo-Iweala, director-general of the World Trade Organisation (WTO), warned that trade growth this year might not hit the WTO’s 3.3% forecast, due to geopolitical conflicts, and the problems in the Red Sea and the Suez Canal.

 

Africa’s debt load spirals as restructuring efforts drag on

As mounting debt casts a shadow over global economic growth, experts warn that sub-Saharan Africa, where several countries are already in default, is experiencing its worst-ever crisis.

The rise in interest rates and over-indebtedness is already crimping the ability of countries to finance their development, as several African leaders warned last week at the World Economic Forum (WEF)in Davos.

Following the 2007-2009 global economic crisis central banks in industrialised countries generally kept interest rates low and countries from the Global South, which had mostly been  borrowing bilaterally or from international financial institutions, gained unprecedented access to financial markets.

“Many developing countries in a desperate need for cash injection in their economies rushed to these low-cost loans, in markets with no rules or regulation,” said Kenyan economist Attiya Waris, who also serves as an independent expert for the United Nations. The International Monetary Fund (IMF) had encouraged them to do so.

The money helped provide a much-needed boost to many African economies, but countries dependent upon the export of raw materials such as oil, minerals and wood came under intense pressure when commodity prices began falling in 2015.

The Covid pandemic further aggravated the situation, as the fall in commodity prices squeezed the foreign currency revenues needed to service their loans.

Several countries took out new loans to repay their existing debt, creating a debt spiral that is preventing investment in vital infrastructure, health systems and education. The World Bank last year estimated that 22 countries are a heightened risk of over-indebtedness, including Ghana and Zambia, which has defaulted on its foreign debt. Also on the list were Malawi and Chad, which has an IMF assistance programme.

Ethiopia, which Fitch Ratings put on partial default in December, is also negotiating a rescue package.

In 2022, African public debt stood at US$1.8 trillion, a 183% increase from 2010, having grown at around four times as fast as economic output, according to UN figures.

Private investors, including investment funds and pension funds, have in recent years risen to become the top lender to African nations. In 2022, they held 42% of African foreign public debt, compared to 38% for multilateral institutions such as the IMF and World Bank, and 20% was held by other nations.

Of the 20% held by other nations, China was the biggest lender to Africa, alone holding 11%.

With higher interest rates adding to the impact of already substantial debt, “African countries are experiencing dangerous currency fluctuations and inflation is increasing all the time,” said Ghanaian economist Charles Abugre.

“The daily impact is dramatic for poor people: we're seeing an explosion in the cost of transport, food, housing, while real wages have stagnated,” he added.

 

US manufacturers look to Mexico for recruitment

The push by US businesses to ramp up manufacturing at home is increasingly facing the challenge of finding suitable workers, due in part to the country’s low unemployment rate, reports Business Insider.

The website quotes Christian Ulbrich, CEO of the real estate services company JLL, who says “There aren’t any people to do the work,” and points out that this stands in sharp contrast to Mexico, whose growing manufacturing base could entice companies to make supply chain investments there, rather than in the US.

Major manufacturers such as General Motors and Intel already announced plans to shift more of their supply chains and manufacturing back to the US, often called “on-shoring” or “re-shoring”. The US government is also investing billions of dollars to boost the domestic production of electric vehicles, semiconductor chips, and batteries.

But labour force shortages have already proven to be an obstacle to the “Made in America” movement, the report notes. Even as the pandemic-era labour shortage has eased, the demand for construction and factory workers has continued to exceed supply.

Since 2020, the pandemic, Russia’s invasion of Ukraine, the world’s changing climate, and, more recently, renewed Middle East conflict have disrupted global supply chains. These factors, along with mounting fears of a possible Chinese invasion of Taiwan, have persuaded some US businesses to bring the production of their goods closer to home.

Companies such as Ford and Tesla have "near-shored" or "friend-shored" part of their supply chains, relying more on countries like Mexico that are close physically and politically — and still often cheaper than the US. Mexico received US$29 billion in foreign direct investment during the first half of 2023, Reuters reported, up 5% compared to 2022. Over half of this investment was in the industrial sector.

Due in part to this near-shoring shift, Mexico eclipsed Canada and China last year to become America's top trade partner, accounting for over 15% of goods exported and imported by the US. Last May, Mexico’s global exports were the second highest on record.

The labour costs of manufacturing in Mexico are also lower than in China, where manufacturing wages have risen in recent years, Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, told Business Insider. Mexico's median age is about 30 he added, against nearly 40 in China, which has contributed to a strong labour supply.

“Companies moving to Mexico will have greater visibility, control and influence on HR, and also on the quality of their goods, and will enjoy shorter delivery times,” he said.

However, as the report notes manufacturing in Mexico also is not without its challenges. Limited infrastructure, inconsistent energy and water supply, and the threat of gang violence could each face more scrutiny if investment in the country continues. Compared to Mexico, manufacturing in the US would likely offer businesses reduced supply chain disruptions and lower transportation costs.

“There are many drawbacks of near-shoring to Mexico, including complicated labour laws, crime and violence, ease of doing business, and regulatory and legal obstacles,” Abadia said.

 

China moves to support yuan as stock markets tumble

China's major state-owned banks have moved to support the yuan (CNY), tightening liquidity in the offshore foreign exchange market while actively selling US dollars onshore as the stock market fell sharply. The benchmark Shanghai Composite index posted its biggest one-day drop since April 2022 on Monday, down 2.7%.

“It is a clear policy signal to stabilise the yuan and counter the negative market sentiment on equities,” said Gary Ng, senior economist for Asia Pacific at Natixis.

Overseas funds have sold an estimated US$1.6 billion in Chinese equities so far this year, with investor confidence dented by signs of slowdown in the world's second largest economy.

China kept benchmark lending rates unchanged at their monthly fixing on Monday, matching expectations with Beijing seen as having limited scope for monetary easing amid downward pressure on the yuan.

The decision came after the People's Bank of China (PBOC) surprised markets last week by holding its medium-term lending facility rate steady.

The central bank has refrained from action despite recent data underscoring the uneven nature of China's economic recovery and deflationary pressures, pushing up real borrowing costs

Market watchers also expect the central bank to ramp up liquidity injections before the upcoming Lunar New Year holidays, when cash demand from corporates and households usually picks up.

The PBOC is expected to employ methods such as reverse repos in open market operations, the state-owned China Securities Journal cited analysts as saying on Monday, adding that chances of a reduction in banks' reserve requirement ratio (RRR) could also not be ruled out.

 

Montenegro turns to Samurai bonds for diversified funding

Montenegro intends to issue a bond on the Tokyo Stock Exchange to diversify its sources of financing, Prime Minister Milojko Spajic wrote on X (formerly Twitter) following a meeting with representatives of the Japanese banking sector on the sidelines of the Davos economic forum.

Spajic said the move would save the Balkan country costs on interest rates as Japan remains the sole country where the interest rates on bonds remain zero despite global inflationary pressures.

“Japan is the only country in the world where interest rates are still at 0 percent, in the midst of an inflationary wave,” Spajic wrote on X after a meeting with the vice president and executive director for Europe and America of Japanese investment bank Daiwa, Keiko Tashiro.

“Until now, Montenegro used London as the only market for financing, however, together with Daiwa, the best Japanese investment bank for Samurai bonds, and other local partners, our country will also go to the Tokyo Stock Exchange in the future to diversify sources of financing, but also to save on interest expenses,” Spajic wrote. 

He added that entering the Japan market would not be easy but once the country succeeds it would have a stable partner. He did not comment on how much the country plans to borrow. 

 

Revolut steps up bid for UK banking licence

Revolut is reportedly beefing up its lobbying team as it steps up efforts to obtain a UK banking licence.

The financial technology firm is seeking a UK Government affairs manager for its team in London, where it has failed to convince regulators that it merits a licence as a full-scale lender. Last March Revolut said it expected to receive a UK banking licence “imminently”, but this did not materialise.

The company applied for a licence from the Bank of England in 2021, which would allow it to expand its services in Britain into taking deposits, making loans and offering credit cards. The process was expected to take about two years, but Revolut it is still wading through demands from the central bank's Prudential Regulation Authority (PRA).

Its services currently include international payments and investments, but it cannot lend money or take deposits.

The job advert says the adviser must understand the 'threats and opportunities' presented by legislation, regulation and Government policy.

 

UBS rolls out fresh layoffs as Credit Suisse integration continues

UBS recently announced a further round of job cuts within its investment bank as the Swiss lender continues with a redundancy programme to strip out thousands of roles after its acquisition last March of rival Credit Suisse.

The Swiss bank told staff about the fresh layoffs on 17 January according to Financial News, which spoke with bankers at UBS, with cuts in its global banking business targeted at the managing director level. The number of reductions was unconfirmed, but the latest redundancies are linked to cost-cutting from the integration with Credit Suisse rather than performance related.

Reports last June suggested that UBS planned to cut more than half the 45,000 staff it inherited from the takeover three months earlier of Credit Suisse. The first round, affecting around 200 investment bankers, followed within weeks and further rounds followed over the second half of 2023.

In all between 30,000 and 35,000 staff are likely to leave the combined organisation. Credit Suisse employees have borne the brunt of the cuts, with about 25,000 posts held by its staff before the takeover removed.

 

Asia currencies missed any boost from weaker US dollar, says ING

Asian currencies failed to take advantage of US dollar weakness over the fourth quarter of 2023, reports ING.

The consensus view in 2024 is that the dollar will decline. As outlined in ING’s 2024 FX Outlook, the bank forecasts a broader dollar trend to become more apparent through Q2 2024 as lower US rates unleash portfolio flows more broadly to global markets.

Since December, the dollar/yuan – USD/CNY – has been at the mid-point of performance for Asia Pacific (APAC) currencies and is roughly unchanged after trading in a range between 7.10 and 7.20.

The Singapore dollar has reacted to mixed data reports, with core inflation still elevated at 3.2% but industrial production and non-oil domestic exports remaining in expansion. China’s ongoing economic challenges and the strength of the CNY in Singapore’s trade basket infer that this is the main source of downside risk.

The Japanese yen (JPY) could well be an outperformer if, as ING’s economics team predicts, the Bank of Japan does significantly shift policy in early Q2 2024.

“The main reason for Asian currency weakness is disappointing Chinese economic growth and a suppressed Chinese Yuan (CNY) as policy makers scramble to reflate the economy” commented ING APAC Regional Head of Research, Robert Carnell.

 

Onafriq and Alviere partner for US cross-border payments to Africa

Onafriq, the pan-African digital payments network previously known as MFS Africa has selected Alviere, the North American embedded finance platform provider to enable payments and remittances from the US to countries in Africa.

According to the World Bank, remittance flows to sub-Saharan Africa are forecast to have risen by about 1.9% in 2023 to US$54billion. Onafriq selected Alviere “for its breadth of solutions, technical expertise and sound approach to regulation and compliance.”

Onafriq will leverage the Alviere HIVE platform and regulatory framework for processing payments originating from the US and its territories in strict compliance with anti-money laundering (AML) sanctions. Additionally, it will comply with fraud standards for US financial institutions to create “a seamless, safe, and secure experience for customers.”

“With Alviere’s technology and regulatory coverage and our extensive footprint across the continent, we will enable fast and secure remittances while facilitating financial access and economic prosperity for Africans,” said Dare Okoudjou, founder and CEO of Onafriq.

 

Standard Chartered’s SC Ventures to open Abu Dhabi office

SC Ventures, the innovation and fintech investment arm of Standard Chartered, plans to open an office in Abu Dhabi Global Market (ADGM) in response to the booming tech ecosystem in the United Arab Emirates (UAE).

The move ”is aimed at actively harnessing opportunities in fintech, digital assets, data, and local talent, all within the growing technology and business innovation ecosystem of the region.” It also follows SC Ventures’ partnership with SBI Holdings, a Japanese financial conglomerate, to set up a digital asset joint venture investment company in the UAE.

Gautam Jain, a banking technology veteran with over three decades of experience, including at at Barclays, HSBC and Citigroup, will lead SC Ventures’ new office. He commented: “UAE’s global tech ecosystem experienced a 134% growth in ecosystem value — the sixth fastest globally and the biggest in the Middle East and North African region.

“SC Ventures sees strong opportunities in the regions’ potential to help rewire the DNA in banking through its top-notch talent and capabilities in venture building and investment mandate — specifically in the areas of fintech, digital assets and data.”

According to Jain, in Q3 2023, ADGM’s assets under management increased 52% from Q3 2022.